After the global financial crisis, monetary policies
have begun to focus not only on price stability but
also on financial stability across many countries. In
order to contain the macrofinancial risks emerging
from global imbalances, the CBRT continued with the
monetary policy strategy that has been implemented
without prejudice to price stability since 2010. To this
end, in addition to short-term money market rates,
the conventional monetary policy tool, the Bank
actively used reserve requirement ratios, the ROM,
the interest rate corridor and other liquidity policies
in 2014.

Due to external and internal developments that
affected risk perceptions in early 2014, the Turkish
lira depreciated significantly and risk premiums
increased notably. In order to contain the
repercussions of these developments on inflation
and macroeconomic stability, the CBRT decided
in January to deliver a strong and front-loaded
monetary tightening and to simplify its operational
framework. The tight monetary stance helped to
curb the deterioration of inflation expectations, to
minimize the volatility in financial markets, and to
improve risk premiums. Despite the measured rate
cuts during mid-2014, the tight monetary policy
stance was maintained throughout the year by
keeping the yield curve nearly flat.

Global financial markets followed a volatile course
in 2014. The ongoing uncertainty about the
normalization of global monetary policies caused
the global risk appetite and capital flows to be
data-sensitive. Against this background, the CBRT
maintained its prudent policy stance and delivered
measured rate cuts by the second quarter of 2014.
Meanwhile, in view of the heightened geopolitical
tensions and the financial market volatility, the tight
monetary policy stance was invigorated by a tight
liquidity policy. Thus, the BIST overnight repo rates
settled close to the upper end of the interest rate
corridor when the tight liquidity policy was in effect.